It has been argued that “… trade adjustment in East Asia…will be rapid and sizable, lifting
aggregate growth in these economies even as the domestic non-tradable sectors continue to
suffer a decline (as in Mexico)” (World Bank, 1998, p.5). Much hope has been pinned on
the electronics industry to come through with rapid growth through expanding exports. Two
arguments appear to bolster such an expectation: the severity of the region´s currency
depreciations has lowered the cost of much of its electronics supply base relative to its
competitors; and the electronics industry´s proven track record as an engine of export-led
growth shows that it can be quickly started and accelerated in response to changes in the
market.
However, no export boom in electronics has (as yet) materialized. The paper analyzes what
explains this puzzle. We first introduce a taxonomy of East Asia´s electronics firms and
market segments to distinguish different capacities to ride out the crisis. We then discuss
three barriers to an East Asian export boom in electronics: i) supply-side constraints that
result from limited access to trade finance, and from the cost-increasing impact of local
currency depreciations in highly import-dependent countries; ii) demand-related constraints,
resulting from deteriorating growth perspectives in East Asia´s electronics export markets;
and iii) deflationary pricing pressures, resulting from a narrow specialization in high-tech
commodities that are characterized by periodic surplus capacity and price wars. Combined,
these barriers have produced a vicious circle: once exports increase, net volume gains are
likely to be offset by pricing losses.